CONTROL #:
NEITHER THIS WARRANT NOR ANY OF THE RIGHTS OR OBLIGATIONS EVIDENCED HEREBY NOR
ANY OF THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR THE SECURITIES LAWS OF ANY STATE (THE "STATE LAWS"). NEITHER THIS
WARRANT NOR ANY OF THE RIGHTS OR OBLIGATIONS EVIDENCED HEREBY NOR ANY OF SHARES
OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD, ASSIGNED,
TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF, IN WHOLE OR IN PART, IN THE
ABSENCE OF SUCH REGISTRATION OR QUALIFICATION OR THE AVAILABILITY OF AN
APPLICABLE EXEMPTION FROM THE REGISTRATION AND QUALIFICATION REQUIREMENTS OF
SUCH ACT AND STATE LAWS EVIDENCED BY AN OPINION OF LEGAL COUNSEL, WHICH OPINION
AND LEGAL COUNSEL ARE SATISFACTORY TO THE COMPANY.
COMMON STOCK PURCHASE WARRANT
Void after 5:00 p.m. (California time) on December 15, 2002.
Warrant to Purchase Shares
of Common Stock, $.01 par value
of Penn Octane Corporation
Dated:
PENN OCTANE CORPORATION
This is to Certify That, FOR VALUE RECEIVED,
, a _____________________
(herein referred to as the "Holder") is, upon the terms and subject to the
conditions hereinafter set forth in this Common Stock Purchase Warrant (the
"Warrant"), entitled to purchase from PENN
Page 36 of 106
OCTANE CORPORATION, a Delaware corporation (the "Company"), on or before
December 15, 2002 (or, if such date is not a Business Day (hereinafter defined),
then on the next succeeding day which is a Business Day), up to shares of
Common Stock, $.01 par value, of the Company (the "Common Stock") at an exercise
price of $4.00 per share, subject to adjustment as to number of shares and
purchase price as set forth in Section 5 below. The exercise price of a share
of Common Stock in effect at any time and as adjusted from time to time is
hereinafter sometimes referred to as the "Exercise Price". For purposes hereof,
a "Business Day" shall mean any day other than a Saturday, a Sunday or a day on
which banking institutions in New York, New York, or in Palm Desert, California,
are authorized by law or regulation to close.
Reference is made to that certain Purchase Agreement, dated as of even date
herewith (the "Agreement"), between the Company and the Holder, pursuant to
which this Warrant is first being issued. This Warrant shall be exercisable,
upon the same terms and conditions, for up to additional shares of Common Stock
if, but only if, the Company does not prepay the entire principal of and all
accrued and unpaid interest on the Note acquired by the Holder pursuant to the
Agreement on or before the 90th day following the date thereof.
The shares of Common Stock issuable upon exercise of this Warrant are
sometimes herein called the "Warrant Stock."
1. Exercise of Warrant. Subject to the other provisions hereof, this
---------------------
Warrant may be exercised in whole or in part at any time and from time to time
by presentation and surrender hereof to the Company for cancellation at its
principal office with the Purchase Form annexed hereto (the "Purchase Form")
duly executed and accompanied by payment of the Exercise Price in immediately
available funds for the number of shares specified in such form. If this
Warrant is exercised in part only, the Company shall, upon surrender of this
Warrant for cancellation, as aforesaid, execute and deliver to the Holder a new
Warrant evidencing the right of the Holder to purchase the balance of the shares
purchasable hereunder. The issuance of certificates for shares of Common Stock
upon the exercise of this Warrant shall be made without charge to the Holder for
any issuance tax in respect thereof (with the exception of any federal or state
income taxes applicable thereto), all such taxes to be paid by the Company, it
being understood however that the Holder shall be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and delivery
of any certificate in a name other than that of the Holder.
2. Reservation of Shares; Stock Fully Paid. The Company agrees that at
---------------------------------------
all times there shall be authorized and reserved for issuance upon exercise of
this Warrant such number of shares of its Common Stock as shall be required for
issuance or delivery upon exercise of this Warrant. All shares which may be
issued upon exercise hereof will, upon issuance, and receipt of payment
therefor, be duly authorized, validly issued, fully paid and non-assessable.
Page 37 of 106
3. Fractional Shares. This Warrant shall not be exercisable in such
------------------
manner as to require the issuance of fractional shares. If, as a result of
adjustment in the Exercise Price or the number of shares of Common Stock to be
received upon exercise of this Warrant pursuant to the terms hereof, fractional
shares would be issuable, no such fractional shares shall be issued. In lieu
thereof, the Company shall pay the Holder an amount in cash equal to such
fraction multiplied by the Fair Market Value of a share of Common Stock. The
term "Fair Market Value" shall mean, as of a particular date, the "market price"
on such date.
For purposes of this Warrant, the "market price" on any day shall be
the last sale price on such day on the NASDAQ Stock Market, or, if the Common
Stock is not then listed or admitted to trading on the NASDAQ Stock Market, on
such other principal stock exchange on which such stock is then listed or
admitted to trading, or, if no sale takes place on such day on any such
exchange, the average of the closing bid and asked prices on such day as
officially quoted on any such exchange, or, if the Common Stock is not then
listed or admitted to trading on any stock exchange, the average of the reported
closing bid and asked prices on such day in the over-the-counter market as
quoted on the National Association of Securities Dealers Automated Quotation
System or, if not so quoted, then as furnished by any member of the National
Association of Securities Dealers, Inc. selected by the Company. If there shall
be no meaningful over-the-counter market, then Fair Market Value shall be such
amount as may be determined solely by the Company, acting in good faith.
4. Rights of the Holder. The Holder shall not, by virtue hereof, be
-----------------------
entitled to any rights of a stockholder of the Company, either at law or in
equity, and the rights of the Holder are limited to those expressed in this
Warrant.
5. Adjustment of Exercise Price and Number of Shares. The number and
---------------------------------------------------
kind of securities purchasable upon the exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as follows:
(a) Adjustment Upon Financing. Upon the closing of a Financing
---------------------------
(as defined in Clause (i)(a) of Recital A to and Section 10 of the Agreement)
after the date hereof in which the net proceeds to the Company exceed
$1,000,000, and:
(i) shares of Common Stock are sold in such Financing for a
per share purchase price (for purposes of this Section 5(a), the "Stock Price")
which is less than the Exercise Price in effect immediately prior to such
event); or
(ii) options or warrants exercisable for the purchase of shares
of Common Stock are issued in such Financing and the amount (for purposes of
this Section 5(a), the "Option/Warrant Price") determined by dividing (A) the
sum of (1) the aggregate consideration received or derived by the Company in
respect of such options or warrants (as determined solely by the Company, acting
in good faith), and (2) the aggregate amount payable to the Company assuming
full exercise thereof (as determined solely by the Company, acting in good
faith), by (B) the aggregate number of shares of Common Stock issuable upon such
full exercise, is less than the Exercise Price in effect immediately prior to
such event; or
Page 38 of 106
(iii) securities convertible into shares of Common Stock are
issued in such Financing and the amount (for purposes of this Section 5(a), the
"Conversion Price") determined by dividing (A) the sum of (1) the aggregate
consideration received or derived by the Company in respect of such convertible
securities (as determined solely by the Company acting in good faith), and (2)
the aggregate amount of any additional consideration payable to the Company
assuming full conversion thereof (as determined solely by the Company, acting in
good faith) by (B) the aggregate number of shares of Common Stock issuable upon
such full conversion is less than the Exercise Price in effect immediately prior
to such event; then, in any of such events, the Exercise Price in effect
immediately prior to such event shall be adjusted to such Stock Price,
Option/Warrant Price or Conversion Price, as the case may be. In addition, the
number of shares purchasable pursuant to the exercise of this Warrant shall be
adjusted so that the aggregate consideration to be paid upon exercise of the
Warrant shall remain the same as prior to such adjustment of the Exercise Price.
The provisions of this Section 5(a) shall be equitably and proportionately
adjusted (as determined solely by the Company, acting in good faith) to give
effect to all of the other adjustments contemplated by this Section 5. No
adjustment in the Exercise Price or number of shares covered by this Warrant
shall be made to the extent that it is determined that equitable and
proportionate adjustments therein have already been made pursuant to the other
provisions of this Section 5. All determinations that are necessary under or
are required, permitted or contemplated by the provisions of this Section 5
shall be made solely by the Company, acting in good faith, without regard to
whether such is otherwise specifically provided for in this Section 5.
(b) Adjustment for Change in Capital Stock. If at any time after
---------------------------------------
the date hereof, the Company:
(i) pays a dividend or makes a distribution on its Common
Stock in shares of its Common Stock;
(ii) subdivides its outstanding shares of Common Stock into a
greater number of shares;
(iii) combines its outstanding shares of Common Stock into a
smaller number of shares;
(iv) makes a distribution on its Common Stock in shares of its
capital stock other than Common Stock; or
(v) issues by reclassification of its Common Stock any shares
of its capital stock;
Page 39 of 106
then the number and kind of securities purchasable upon exercise of this Warrant
and the Exercise Price in effect immediately prior to such action shall each be
adjusted so that the Holder may receive upon exercise of this Warrant and
payment of the same aggregate consideration, the number of shares of capital
stock of the Company which the Holder would have owned immediately following
such action if the Holder had exercised the Warrant immediately prior to such
action.
The adjustment shall become effective immediately after the record date in
the case of a dividend or distribution and immediately after the effective date
in the case of a subdivision, combination or reclassification.
(c) Adjustment for Other Distributions. If at any time after the
-----------------------------------
date hereof, the Company distributes to all holders of its Common Stock any of
its assets or debt securities, the Exercise Price following the record date
shall be adjusted in accordance with the following formula:
E'= E x M-F
---
M
where: E' = the adjusted Exercise Price.
E = the Exercise Price immediately prior to the adjustment.
M = the market price (as defined in Section 3 hereof) per
share of Common Stock on the record date of the
distribution.
F = the aggregate fair market value (as determined solely by
the Company, acting in good faith) on the record date
of the assets or debt securities to be distributed divided
by the number of outstanding shares of Common Stock.
The adjustment shall be made successively whenever any such distribution is
made and shall become effective immediately after the record date for the
determination of shareholders entitled to receive the distribution. In the
event that such distribution is not actually made, the Exercise Price shall
again be adjusted to the Exercise Price as determined without giving effect to
the calculation provided hereby. In no event shall the Exercise Price be
adjusted to an amount less than zero.
This Section 5(c) does not apply to transactions covered by Section 5(b) or
to cash dividends or cash distributions paid out of consolidated current or
retained earnings as shown on the books of the Company and paid in the ordinary
course of business.
(d) Deferral of Issuance or Payment. In any case in which an
-----------------------------------
event covered by this Section 5 shall require that an adjustment in the Exercise
Price be made effective as of a record date, the Company may elect to defer
making such adjustment until the occurrence of such event. If the Company so
defers making any such adjustment and if this Warrant is exercised after such
record date but before the occurrence of such event, the shares of Common Stock
Page 40 of 106
and other capital stock of the Company, if any, issuable upon such exercise, had
such adjustment been made as of the record date, over and above the shares of
Common Stock or other capital stock of the Company, if any, issuable upon such
exercise on the basis of the Exercise Price as unadjusted, shall be issued
promptly following the occurrence of such event and the Company shall pay to the
Holder by check any amount in lieu of the issuance of fractional shares pursuant
to Section 3.
(e) When No Adjustment Required. No adjustment under this Section
---------------------------
5 need be made for a change in the par value or no par value of the Common
Stock.
(f) Statement of Adjustments. Whenever the Exercise Price and
--------------------------
number of shares of Common Stock purchasable hereunder is required to be
adjusted as provided in this Section 5, the Company shall promptly prepare a
certificate signed by its President or any Vice President and its Chief
Financial Officer, Treasurer or any Assistant Treasurer, setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated (including a
description hereunder), and the Exercise Price and number of shares of Common
Stock or other securities purchasable hereunder after giving effect to such
adjustment, and shall promptly cause copies of such certificates to be delivered
to the Holder pursuant to Section 14 of that certain Purchase Agreement, dated
as of even date herewith (the "Agreement") pursuant to which this Warrant is
first being issued.
(g) No Adjustment Upon Exercise of Warrants. No adjustments shall
---------------------------------------
be made under this Section 5 in connection with the issuance of Warrant Stock
upon exercise or exchange of the Warrants.
(h) No adjustment for Small Amounts. Notwithstanding anything in
--------------------------------
this Section 5 to the contrary, no adjustment of the Exercise Price or the
number or type of securities covered by this Warrant shall be made if the amount
of such adjustment in the Exercise Price shall be less than $.05 per share, but
in such case, any adjustment that would otherwise be required then to be made
shall be carried forward and shall be made at the time and together with the
next subsequent adjustment of the Exercise Price which, together with any
adjustment of the Exercise Price so carried forward, shall amount to $.05 per
share or more.
(i) Common Stock Defined. Subject to the provisions of Section 6
---------------------
hereof, shares issuable upon exercise hereof shall include only shares of the
class designated as Common Stock of the Company as of the date hereof or shares
of any class or classes resulting from any reclassification or reclassifications
thereof or as a result of any corporate reorganization as provided for in
Section 6 hereof.
Page 41 of 106
6. Reclassification, Reorganization, Consolidation or Merger. In the
-----------------------------------------------------------
event of any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the Company (other than a subdivision or
combination of the outstanding Common Stock and other than a change in the par
value of the Common Stock) or in the event of any consolidation or merger of the
Company with or into another corporation (other than a merger in which merger
the Company is the continuing corporation and that does not result in any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the class issuable upon exercise or exchange of this Warrant)
or in the event of any sale, lease, transfer or conveyance to another
corporation of the property and assets of the Company as an entirety or
substantially as an entirety, the Company shall, as a condition precedent to
such transaction, cause effective provisions to be made so that the Holder shall
have the right thereafter, by exercising this Warrant, to purchase the kind and
amount of shares of stock and other securities and property (including cash)
receivable upon such reclassification, capital reorganization and other change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock that might have been received upon exercise or exchange of this
Warrant immediately prior to such reclassification, capital reorganization,
change, consolidation, merger, sale or conveyance. Any such provision shall
include provisions for adjustments in respect of such shares of stock and other
securities and property that shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Warrant. The foregoing provisions of
this Section 6 shall similarly apply to successive reclassifications, capital
reorganizations and changes of shares of Common Stock and to successive
consolidations, mergers, sales or conveyances. In the event that in connection
with any such capital reorganization or classification, consolidation, merger,
sale or conveyance, additional shares of Common Stock shall be issued in
exchange, conversion, substitution or payment, in whole or in part, for, or of,
a security of the Company other than Common Stock, any such issue shall be
treated as an issue of Common Stock covered by the provisions of Section 5(b)
hereof.
7. Notice to Warrant Holders. So long as this Warrant shall be
----------------------------
outstanding, (i) if the Company shall pay any dividend or make any distribution
upon its Common Stock, or (ii) if the Company shall offer to the holders of
Common Stock for subscription or purchase by them any shares of stock or
securities of any class or any other rights, or (iii) if any capital
reorganization of the Company, reclassification of the capital stock of the
Company, consolidation or merger of the Company with or into another
corporation, or any conveyance of all or substantially all of the assets of the
Company, or voluntary or involuntary dissolution or liquidation of the Company
shall be effected, then, in any such case, the Company shall cause to be
delivered to the Holder pursuant to Section 14 of the Agreement, at least twenty
(20) days prior to the date specified in (x) or (y) below, as the case may be, a
notice containing a brief description of the proposed action and stating the
date on which (x) a record is to be taken for the purpose of such dividend,
distribution or rights, or (y) such reclassification, reorganization,
consolidation, merger, conveyance, dissolution or liquidation is to take place
and the date, if any is to be fixed, as of which the holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for securities
or other property deliverable upon such reclassification, reorganization,
consolidation, merger, conveyance, dissolution or liquidation.
Page 42 of 106
8. Certain Obligations of the Company. The Company agrees that it will
----------------------------------
not increase the par value of the shares of Warrant Stock issuable upon exercise
of this Warrant above the prevailing and currently applicable Exercise Price
hereunder, and that before taking any action that would cause an adjustment
reducing the prevailing and current applicable Exercise Price hereunder below
the then par value of the Warrant Stock at the time issuable upon exercise of
this Warrant, the Company will take such corporate action, as in the opinion of
its counsel, may be necessary in order that the Company may validly issue fully
paid, nonassessable shares of such Warrant Stock. The Company will maintain an
office or agency (which shall initially be the Company's principal office in
Palm Desert, California) where presentations and demands to or upon the Company
in respect of this Warrant may be made and will give notice in writing to the
Holder pursuant to Section 14 of the Agreement of each change of location
thereof.
9. Repurchase Right. Notwithstanding any other provisions of this
-----------------
Warrant, the Company may, in the event that the per share closing price of the
Company's Common Stock, as reported on the NASDAQ SmallCap Market or such other
principal market in which the Company's Common Stock may then be quoted, exceeds
$7.50 for any period of twenty (20) consecutive trading days (a "Relevant
Trading Period"), upon not less than thirty (30) days' notice (a "Warrant
Repurchase Exercise Notice") in writing to the Holder pursuant to Section 14 of
the Agreement, repurchase all or any portion of this Warrant at a purchase price
equal to $.10 per share of Common Stock covered hereby, such purchase price to
be equitably and proportionally adjusted (as determined solely by the Company,
acting in good faith) each time the Exercise Price is adjusted pursuant to
Section 5 hereof; provided, however that the Company shall not be entitled to
exercise such repurchase rights if and to the extent that (i) the Holder has
registration rights in respect of the Common Stock covered by this Warrant under
the Registration Rights Agreement (as defined in the Agreement), (ii) a
registration statement covering the sale of such Common Stock by the Holder has
not been filed by the Company with the Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended (the "Act") and declared
effective by the SEC thereunder, and (iii) such registration statement (or any
amended or successor registration statement) is not effective for at least one
full Relevant Trading Period; and, provided further, that the restrictions on
the Company's repurchase rights contained in the immediately preceding proviso
shall terminate if and to the extent that the Holder (i) has been offered, but
has declined, the opportunity to include such shares of Common Stock in a
registration statement being filed by the Company under the Act, or (ii) is
eligible, during any full Relevant Trading Period, to sell such shares under the
provisions of Rule 144 (or any successor or similar such rule, other than Rule
144A) without regard to the volume limitations thereof. During such thirty (30)
day period, the Holder may exercise such Warrants or a portion thereof in
accordance with the terms hereof. The closing of such repurchase shall occur on
the date, at the time and at the place set forth in such Warrant Repurchase
Exercise Notice or at such other time, date or place as shall be agreed upon by
the Company and the Holder. At the Closing, unless and except to the extent
that this Warrant has been exercised by the Holder during such thirty (30) day
period, the Company shall deliver to the Holder an amount equal to the purchase
price in immediately available funds and the Holder will deliver this Warrant to
the Company for cancellation. To the extent any repurchase hereunder is of less
than all of the rights represented by this Warrant, the Company will deliver to
the Holder a new Warrant covering the rights not so purchased.
Page 43 of 106
10. Determinations by Board of Directors. All determinations by the
---------------------------------------
Company under the provisions of this Warrant will be made in good faith.
11. Notice. All notices and other communications required or permitted
------
hereunder shall be given as provided in Section 14 of the Agreement.
12. Replacement of Lost, Stolen, Destroyed or Mutilated Warrants. Upon
------------------------------------------------------------
receipt of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant and, in the case of any such loss,
theft or destruction, upon delivery of an indemnity bond in such reasonable
amount as the Company may determine, and, in the case of any such mutilation,
upon the surrender of such Warrant for cancellation, the Company will execute
and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new
Warrant of like tenor.
13. Assignability; Binding Effect. The provisions of Sections 9 and 15
-----------------------------
of the Agreement are incorporated herein by this reference and made applicable
to this Warrant and the Common Stock covered hereby.
14. Number and Gender. Whenever the singular number is used herein,
-------------------
the same shall include the plural where appropriate, and words of any gender
shall include each other gender where appropriate.
Page 44 of 106
15. Applicable Law. This Warrant shall be governed by, and construed
---------------
in accordance with, the laws of the State of New York, without regard to its
conflict of laws principles.
PENN OCTANE CORPORATION
By:
Xxx X. Xxxxxxxx, Vice President and
Chief Financial Officer
Page 45 of 106
PURCHASE FORM
-------------
Penn Octane Corporation
00-000 Xxxxxxx Xxxx, Xxxx. X
Xxxx Xxxxxx, Xxxxxxxxxx 00000
Attention: President
The undersigned hereby irrevocably elects to exercise the within Warrant to
purchase ___________ shares of Common Stock and hereby makes payment of
$____________ in payment of the Exercise Price thereof.
Dated:,
Signature of Holder
Print Name of Holder
Address of Holder:
-------------------------------------
-------------------------------------
-------------------------------------
Fax No.
-----------------------------
Page 46 of 106
